Tech companies have always enjoyed strong popularity on the stock market. But even knowing that, it’s hard to ignore the recent surge of attention towards the subject in the news. You’ve probably noticed a lot of people and sites talking about investing in various tech companies (and not just tech ones), with discussions primarily revolving around GameStop.
So why is a company that was recently facing severe financial issues suddenly such a hot topic among investors? This is not a typical stock market story – and it could be a one-of-a-kind event.
The GameStop Incident
Several unrelated posts on Reddit around the end of January 2021 brought up GameStop (GME) as a potentially viable investment opportunity. Despite reports predicting that the value of the GME stock was about to decline, users rallied around the stock and started investing in it.
Some were more cautious with their expenses, while others bought stocks worth thousands of dollars. Over several days, the price of GameStop’s stock rose significantly – from just under $20 when it all started, to just under $348 at the peak.
Users were mostly concerned with the idea of going up against hedge funds allegedly attempting to short the stock. Driving the price up was seen as a way to force hedge funds into an uncomfortable position. The volatility of the stock prompted Robinhood, one of the major brokerages on the market, to halt trading of GameStop stocks. This outraged many traders, who believed that the move was actually motivated by Robinhood’s ties to a major hedge fund.
The price of GameStop’s stocks ended up stabilizing around $150, and the situation seems to have reflected well on the company itself. GameStop announced changes in its organizational structure which were well received, and the company is slowly recovering from its previous dire state.
Media attention towards the situation exploded around the beginning of February. Many outlets were covering the story actively, and discussions about investing in the tech market started to ramp up.
Between the involvement of Reddit’s “WallStreetBets” subreddit (more on that below), the suspicious actions of Robinhood’s leadership, and the current state of the market, the situation grew to a point where the US government got involved. Several government agencies reportedly launched investigations into the situation.
Some of the negative attention fell on Reddit as well. Robinhood already suffered from issues with its reputation before, but this seemed to be a significant additional blow to the company.
The Explosion of Reddit’s WallStreetBets
WallStreetBets is a Reddit community revolving around stock trading. The unusual attitude of its users has occasionally drawn media attention to it in the past, though not to the extent that we’re observing right now.
The community is known for an aggressive, often sarcastic, approach to trading and a generally lighthearted, comic vibe. Most discussions regarding GameStop stock and the short squeeze originated there. The site eventually saw an explosion of traffic, with the subreddit in particular growing over 10 times in size.
At this point, concerns were brought up that the “big players” on the market were fighting back and attempting to poison the discourse. Various new stocks were brought up over the next few weeks, including AMC Theaters and silver, as well as several cryptocurrencies. However, many users were wary of these developments and chose to focus on GameStop instead.
Did Small Investors Really Win?
Over time, the price of GameStop’s stock seems to have stabilized. Many users were predicting a much more significant growth by March-April, with some claims going over $1,000. However, this is starting to seem very unlikely at this point.
Analysis of trading trends indicates that most of the hype around the stock seems to have died down, and trading activities have mostly returned to normal. A large number of people are still holding significant volumes of stock with no apparent intention of selling it. But this doesn’t seem to have affected the stock’s position in the market much.
There have been many attempts to analyze the situation from a more rational perspective, and to determine if the craze around investing in GameStop really made a noticeable dent in the portfolios of hedge funds.
Some news reports seemed to indicate that certain funds were facing trouble, but these reports were short-lived and didn’t develop much further. And of course, hedge funds and other major entities on the stock market are unlikely to reveal if their situation is deteriorating.
Is This Trend Going to Last?
Many experts see this as something that will never happen again. It was the perfect combination of several crucial factors, and the circumstances will likely not line up like that in the future. That said, there is certainly a lot that can be learned from the incident.
Many people started exploring the tech stocks market with a much more curious attitude. At the same time, some stopped seeing major organizations like hedge funds as unshakeable monoliths. While reports about the final outcome of the situation remained questionable, it was clear that something happened behind the scenes that not many people were happy about.
There are also talks about new regulations to be put in place in the coming months and years to prevent an incident like this from occurring again. Opinions about this are divided, with some seeing it as the government stepping in to help the wrong side. In any case, it will be interesting to see whether the situation ends up having some long-lasting repercussions on the stock market.
The Stock Market Is in a Great Place
Tech stocks are not the only options available for investing, but they certainly have their attractive factors. The market is in a great state right now, and it’s been drawing in lots of new investors. The pandemic has been a major compounding factor for the popularity of trading as a whole.
For those looking to get in the field, there’s hardly been a better time. Trading is something that should always be done with caution and an educated approach though. This situation just served to show us how unpredictably the market can move, even in the eyes of specialists who are supposed to understand it better than anyone.
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